Travelzoo 2014 Annual Report Download - page 106

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71
The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The
Company is subject to U.S. federal and certain state tax examinations for years after 2009 and is subject to California tax
examinations for years after 2005. The Company's 2009 and 2010 federal income returns are currently under examination,
including a review of the impact of the sale of Asia Pacific business segment in 2009. These examinations may lead to ordinary
course adjustments or proposed adjustments to our taxes or our net operating income. The Company has received a Revenue
Agent’s Report (RAR) generally issued at the conclusion of an IRS examination, which was consistent with the Notice of
Proposed Adjustment received earlier from the IRS for the 2009 calendar year related to the sale of our Asia Pacific business
segment with additional penalties. The RAR proposes an increase to the Company's U.S. taxable income which would result in
additional federal tax, federal penalty and state tax expense totaling approximately $31 million, excluding interest and state
penalties, if any. The proposed adjustment is primarily driven by IRS’s view that the Asia Pacific business segment assets sold
by the Company had a significantly higher valuation than the sales proceeds the Company received upon the sale. The
Company disagrees with the proposed adjustments and intends to vigorously contest them. The Company did not make any
adjustments to its liabilities for uncertain tax positions related to the RAR for the year ended December 31, 2014 because the
Company does not believe the IRS’s valuation of Asia Pacific business segment assets is appropriate. If we are not able to
resolve these proposed adjustments at the IRS examination level, we plan to pursue all available administrative and, if
necessary, judicial remedies.
Note 7: Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated balances of other comprehensive income (loss) (in
thousands):
Year Ended December 31,
2014 2013 2012
Beginning balance $ (530) $ (737) $ (1,422)
Other comprehensive income due to foreign currency translation, net of tax (2,467) 207 685
Ending balance $ (2,997) $ (530) $ (737)
There were no amounts reclassified from accumulated other comprehensive income (loss) for the years ended December
31, 2014, 2013 and 2012. Accumulated other comprehensive income (loss) consists of foreign currency translation gain or loss.
Note 8: Employee Benefit Plan
The Company maintains a 401(k) Profit Sharing Plan & Trust (the “401(k) Plan”) for its employees in the United States.
The 401(k) Plan allows employees of the Company to contribute up to 80% of their eligible compensation, subject to certain
limitations. Since 2006, the Company matches employee contributions up to $1,500 per year. Employee contributions are fully
vested upon contribution, whereas the Company’s matching contributions are fully vested after the first year of service. The
Company also has various defined contribution plans for its international employees. The Company’s contributions to these
benefit plans were approximately $1.3 million, $1.5 million and $1.2 million for the years ended December 31, 2014, 2013 and
2012, respectively.
Note 9: Stock-Based Compensation and Stock Options
The Company accounts for its employee stock options under the fair value method, which requires stock-based
compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion
of the award that is expected to vest is recognized as expense over the related employees’ requisite service periods in the
Company’s consolidated statements of income. Cash flows resulting from tax deductions in excess of the compensation cost
recognized for those options (excess tax benefits) are classified as financing cash flows. For the years ended years ended
December 31, 2014, 2013 and 2012, there were no stock option exercises and no excess tax benefits.
In October 2001, the Company granted to each director fully vested and exercisable options to purchase 30,000 shares of
common stock with an exercise price of $2.00 per share for their services as a director in 2000 and 2001. A total of 210,000
options were granted. The options expired in October 2011. During the years ended December 31, 2011, 2008, 2005 and 2004,
12,725 options, 30,000 options, 17,275 options and 150,000 options, respectively, were exercised.